Big CPI day today
As you probably are very aware of today we will have the last big data release in the US before FED’s rate decision. We are of course talking about CPI and especially the core CPI month on month. Consensus seems to be that another high reading can result in high volatility while a lower number might only result in a knee-jerk reaction as everyone expects the FED to raise rates as planned anyway. Recent releases does show some possibly high volatility as many traders are trying to find the bottom, which very well could be indicated by lower than expected CPI together with other data that has cooled of some the last weeks.
Our take on today’s possibilities is some possible large movements on a reading that are off consensus to either side. Because of this we have placed another vanilla-call option for 25,000 oz silver as it can be very volatile on a lower reading. It is way down since last week so we see a possible large upside on a low CPI reading today. Should it not materialize there are other outs such as increased tensions between Russia and the West and China and Taiwan/USA. On top of that the USD is smoking hot and could retrace some. In other words the option has a very limited downside and a possible large upside and many outs as well. We have bought it with a strike-price of 19,5 USD/oz and expiry at 19th of October (New York cut).
The next reason for us to make use of this option for the CPI release is that we have a lot of margin ready to use when the release has been publicized on top of the option. Should the reading be lower than the expected +0,4 % we can reach a considerable higher profit than without the option. If it goes the other way we can hedge our option and as the expiry is on 19th October it can still move back in-the-money as well. Many upsides, very limited downside.
For those that can remember our XAGUSD call-option from last week we can reveal that it went out-of-the-money, should you be in doubt.
Our instrument chosen for when the CPI data is being released are for now EURUSD. We know that instrument very well and there is a lot of liquidity in it. There’s probably other FX crosses that might move more on a surprise CPI reading but we have not had enough time to evaluate it to make a shift to a possible better FX cross. Possible crosses that might be worth considering are GBPUSD and JPYUSD.
A low reading can lead to a buy-it-all reaction so be ready and chose your instrument carefully having in mind what you have experience in using and not just what seems to yields best today. Also worth to note are the job data (Consensus: +225k) today at 08.30 (New York time) same time as when the CPI is being released and of course the consumer sentiment tomorrow. As insinuated above a higher reading than expected will probably further ignite a sell-it-all reaction.
